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The Canada Business Corporations Act (CBCA) was significantly
amended by Bill S-11 to improve the legal framework for federal
corporations by enhancing shareholder decision input in decision
making and providing corporations with greater flexibility in pursuing
marketplace opportunities. For instance, the amendments allow a
stronger international representation on the boards of
CBCA
corporations thereby enhancing global competitiveness. Bill S-11,
formally known as An Act to amend the Canada Business Corporations
Act and the Canada Cooperatives Act, received royal assent on
June 14, 2001.

The regulations replace entirely the former regulations under the
Canada Business Corporations Act (CBCA) and provides the
regulatory framework to implement Bill S-11. Given the number of
changes needed to be made, including modernization of the drafting
language, it was decided to replace all the former regulations with a
renumbered version that includes the new provisions required by Bill
S-11 and removes unnecessary regulations.

All changes to the regulations are listed in Annex A, including
technical or non-material changes. This section describes only
significant changes to the regulations required by Bill S-11
amendments in the order that they appear in the regulations:

Two changes, though significant, are not described in detail but are
summarized in Annex A. The
CBCA
has been amended so that (1) the Director who administers the
CBCA
can set forms administratively, such
as an application form for incorporation, rather than by regulations
and (2) certain items such as time limits and references to other
federal legislation which were prescribed in the statute are now to be
prescribed in the regulations. The result of the first amendment is
that forms are to be repealed from the regulations. As for the second
amendment, the regulations now prescribe a number of requirements that
were formerly prescribed in the
CBCA.
An example is the time period
the Director must retain certain records of a particular corporation.
The CBCA
used to stipulate the period to be six years; now the
regulations prescribe that time period. The reason for this amendment
is to allow government to respond more quickly to a changing
environment without having to go to Parliament to make statutory
changes of this nature, e.g., time periods. Where the prescribed
requirements have been transferred to the regulations, they remained
the same except where they were changed to harmonize with provincial
requirements.

The definition of "distributing corporation", which many
refer to as a public company, is harmonized with the provincial
securities legislation definitions of "reporting issuer".
Where a definition of "reporting issuer" exists in a
provincial or territorial statute, that definition prevails for
federal corporations to which that statute applies. Corporations that
are subject to an exemption under provincial legislation are not
considered distributing corporations. If a corporation is not subject
to a provincial statute, it is a distributing corporation if it
engages in an activity that would have been caught by securities
legislation. For instance, a corporation that lists its shares in a
stock exchange in the United States but not in Canada would be
considered a distributing corporation.

The definition of a "going private transaction", i.e. where
a distributing corporation becomes a private corporation without the
consent of shareholders, is based on the definition in the Ontario
Business Corporations Act. It is intentionally broad to
expressly include transactions commonly referred to in the marketplace
as going-private transactions. The CBCA was amended to allow
going-private transactions only if they comply with any applicable
provincial securities law.

The amendments to the CBCA permit corporations to use electronic
documents in communicating with its shareholders. The regulations fix
the manner in which consent to electronic communication may be given
(and revoked) and allow documents to be posted on web sites provided
the addressee receives notice about the location of the document.
Certain documents cannot be posted on web sites, however; namely
documents required by the CBCA to be sent to a specific place such as
a registered office. When documents must be sent to several
addressees, the regulations state that the documents must be sent to
the addressees at the same time, regardless of the manner in which
they are being provided. Documents may also be sent to a specific
information system instead of the specific place established in the
CBCA, such as the registered office of the corporation. Finally, the
regulations clarify that an electronic document is considered to have
been received when it enters an information system, such as a server,
or if it is made available through a web site or other electronic
source, when the notice of the availability is received by the
addressee. The notice could be sent electronically and is considered
received when it enters an information system designated by the
addressee.

The electronic documents regulations do not apply to the transmission
of security certificates and to documents or information sent to or
issued by the Director. The Director administratively specifies how
this information is to be sent.

Amendments to the CBCA reduced the residency requirements for
directors so that only 25 percent of directors of a corporation must be
Canadian residents rather than a majority. The regulations establish
the business sectors that are required to maintain a majority of
resident Canadian directors. These sectors are uranium mining; book
publishing, distribution and book sales where the sale of books is the
primary part of a corporation's business; and distribution of film
and video. Corporations operating in industry sectors that are
regulated by federal statutes may be subject to different residency
requirements.

The CBCA has been amended to allow a subsidiary to acquire shares of
the parent corporation to increase flexibility for global corporations
that choose to incorporate under the CBCA. The amendment benefits
Canadian corporations with foreign subsidiaries that want to merge
with or take over foreign companies and provide the appropriate tax
advantages to shareholders of the target corporation. The regulations
set out the conditions that must exist before and after the
acquisition. The conditions prior to the acquisition are: the
subsidiary must not be resident in Canada; the value paid for the
shares must be equal to the fair market value of those shares; the
shares are widely held and actively traded on a Canadian stock
exchange; and the acquisition is for the sole purpose of transferring
the shares to shareholders of a non-Canadian corporation that deals at
arm's length, as determined by the Income Tax Act, with
the corporation and its subsidiary.

After the acquisition, the subsidiary must immediately transfer the
shares to shareholders of the non-Canadian corporation and cannot
retain beneficial interest of the shares. After the transfer, the
non-Canadian corporation must become a subsidiary of the parent
corporation but cannot become a resident in Canada. The subsidiary
transferring the shares cannot become a Canadian corporation.

If the conditions after the acquisition are not met within 30 days,
the parent corporation must cancel the shares, return the amount paid
for the shares, and deduct that amount from the corporation's
stated capital account.

The regulations specify the number of shares or votes that an
individual must hold to be deemed an "insider" of a
corporation since the number is no longer set out in the CBCA. This
reflects the policy decision to transfer requirements such as the
prescribed number of shares to the regulations from the statute. The
prescribed amount of ten per cent is not a change from the former
statutory requirement. The CBCA was also amended so that a person who
proposes to make a take-over bid is deemed to be an insider. The
definition of "take-over bid" is also set out in the
regulations. Consistent with the objective of harmonizing federal and
provincial law wherever possible, the definition of "take-over
bid" incorporates the relevant provincial definitions.

In addition, the regulations set out the circumstances under which an
insider is exempt from liability: where the insider was acting as an
agent or trustee; where the insider participated in an automatic
dividend reinvestment plan; and where the insider was fulfilling a
legal obligation.

The regulations specify that shareholders may also vote by telephonic
or electronic means provided that the voting mechanism allows a
verification of the votes cast while preventing the corporation from
finding out how a particular shareholder voted.

The amendments to the CBCA enhance shareholders' rights by
liberalizing the mechanisms through which persons may notify a
corporation of any matter they propose to raise at an annual meeting
of shareholders (a "proposal"). To be eligible to submit a
proposal, a person must hold, or have the support of persons who hold,
1 percent of the total number of outstanding voting shares of the
corporation or the number of shares with a value of $2000. The person
or those supporting him or her must have held the shares for at least
six months. A corporation may ask the shareholder to provide proof
that he or she owns the required amount of shares and has owned them
for at least the minimum period required. The shareholder must respond
within 21days after the corporation's request.

The regulations fix the word limit for a proposal and its supporting
statement to 500 words and prescribe the deadline for submission as 90
days before the anniversary date of the notice of meeting that was
sent in connection to the previous annual meeting of shareholders.

A corporation can refuse to include a shareholder's proposal in
its proxy circular if, within the two-year period before the
submission, the shareholder failed to present, in person or by proxy,
at the annual meeting a proposal that was included in a proxy
circular.

If substantially the same proposal was submitted previously, the
corporation can refuse to include the proposal in the management proxy
circular if the minimum amount of support was not achieved within the
previous five year period. The prescribed minimum amount is 3 percent
of the total number of votes if the proposal was introduced at one
annual meeting, 6 percent if the proposal was introduced at two annual
meetings, and 10 percent if the proposal was introduced at three or
more annual meetings. The scale is based on Rule 14 made under the
United States' Securities and Exchange Act of 1934.

If a corporation includes in its circular a proposal submitted by a
shareholder and that shareholder fails to continue to hold the
required numbers of shares until the actual meeting, the regulations
allow the corporation to refuse to include any subsequent proposal
submitted by that shareholder in its proxy circular for a period of
two years.

The regulations require a corporation to notify a person submitting a
proposal of its intention to omit a proposal from its circular, if it
intends to do so, within 21 days of receipt of the proposal or of
proof of ownership.

The CBCA was amended so that the deadline date for submitting a
proposal is pegged to the anniversary date of the notice of the
previous annual meeting rather than to the annual meeting date itself.
There was some concern that this change may cause confusion among
shareholders. To avoid confusion, the regulations require that
management proxy circulars that are sent to shareholders include a
statement indicating the final date by which a corporation must
receive a proposal that a shareholder proposes to raise at the next
annual meeting.

The amendments to the CBCA increase the rights of shareholders to
communicate among themselves. The CBCA is structured so that a
shareholder engaging in an activity that falls under the statutory
definition of "solicitation" must send a proxy circular to
all other shareholders at his or her own expense. To expand
shareholders' rights, the definition in the CBCA was amended to
exclude certain shareholder communications from this requirement.

For example, the CBCA amendments require the regulations to prescribe
the type of public announcement that is excluded from definition of
"solicitation". The regulations exclude speeches made in
public fora as well as press releases, statements, or advertisements
provided through broadcast or telephonic means, or other publications
available to the public.

The regulations also set out the conditions under which persons other
than management can communicate with shareholders without having to
produce a dissident proxy circular. The regulation differs from the
proposed regulation that was prepublished in Part I of the Canada
Gazette. (See discussion under Consultations and in
Annex B on dissident proxy circular.)

The regulations also set out the circumstances under which a person
may solicit proxies by public broadcast without sending a
dissident's proxy circular. These circumstances relate to the
content of the public broadcast and that the person must send a notice
and a copy of any related publication to the Director and to the
corporation before soliciting proxies.

The CBCA was amended to include a regime of modified proportionate
liability with respect to the provision of financial information
required under the Act. Modified proportionate liability means that
every defendant found by a court to be responsible for a financial
loss arising out of an error, omission or misstatement in financial
information required by the legislation or the regulations would be
liable to the plaintiff only for the portion of the damages
corresponding to the defendant's degree of responsibility. This is
a departure from the joint and several liability regime that existed
in the CBCA prior to the amendments and that applied to all
plaintiffs. (Under a joint and several liability scheme, a plaintiff
can seek full compensation from any of the defendants found liable.)
The joint and several liability regime continues, however, to apply in
certain cases, one of which is where the plaintiff's investment in
the corporation is below a threshold to be prescribed by the
regulations. The regulation fixes the investment value threshold for
joint and several liability at $20 000.

In its original report on modified proportionate liability, the Senate
Standing Committee on Banking, Trade and Commerce recommended a net
worth test to differentiate between those investors who would have
access to joint and several liability and those who would be governed
under a modified proportionate liability regime. Given the privacy
issues with a net worth test, the investment value threshold, set at
$20 000, is intended to meet the same policy purpose. It is intended
to provide protection to small investors without requiring plaintiffs
to disclose all of their personal assets to the court. The Senate
Standing Committee agreed with this approach.

The regulations set out the conditions under which the Director may
cancel the articles and related certificates of a corporation. These
circumstances are: (a) where the error is obvious; (b) where the error
was made by the Director; (c) where ordered by a court; or (d) where
the Director lacked the authority to issue the articles and related
certificate.

The regulations also establish the circumstances under which the
Director can cancel a certificate at the request of the corporation or
an interested party. Those circumstances are: (a) where there is no
dispute among the directors and/or shareholders on the circumstances
of the application; or (b) where the corporation has not used the
articles and related certificate, or, if it has, where anyone dealing
with the corporation on the basis of the certificate has consented to
the cancellation.

There are no alternatives to the regulations because they are required
for the proper functioning of the CBCA. For example, a number of the
regulations prescribe time periods and amounts such as dollar values
for specific sections of the CBCA. Without these specifications, the
CBCA provisions cannot come into force.

Most of the changes in the regulations are enabling rather than
restricting, meaning that they will allow a corporation or a
shareholder to do or perform an action which could not be done
previously or otherwise. For instance, the CBCA was amended to allow
electronic communications. The regulations set out the requirements
that must be met so that the communication could take place (e.g., how
consent must be obtained, how voting must be conducted). These
provisions are enabling because there is nothing in the CBCA or the
regulations that requires a corporation to use electronic means when
communicating with shareholders. Therefore, a corporation electing to
use electronic communications will do so on the basis that the
benefits of using electronic means exceed the costs of having to
comply with the relevant sections of the regulations. For instance, if
a corporation wanted to hold an electronic vote, the cost imposed by
the regulations is that it must have an electronic voting system that
ensures subsequent verification of the votes and permits votes to be
presented without it being possible for the corporation to identify
how each shareholder or group of shareholders voted.

A similar enabling provision concerns communications among
shareholders. The regulations prescribe the circumstances that allow a
shareholder to communicate with other shareholders without incurring
the expense of publishing a dissident proxy circular or seeking an
exemption from the Director. The overall benefit is enhanced
shareholder participation in the affairs of the corporation. There is
no additional cost to the corporation, the shareholders, or the
Director. In fact, it is expected that the Director will receive fewer
exemption requests, resulting in marginal savings for the dissident.

The shareholder proposal provisions also do not impose costs since
they set out the rules that a person must follow in order to submit a
proposal. The CBCA has been amended to expand shareholder rights and
requires the regulations to set out the deadlines that must be met.
Arguably, expanding shareholders rights increases the costs for
corporations that have to handle a higher number of proposals.
However, the regulations themselves do not impose a cost. Instead, the
objective of the regulation is to strike a balance between the
interests of the person submitting the proposal and the corporation in
terms of giving each party sufficient time to submit a proposal and
respond to it.

The only fee change relates to corrected certificates and no
additional costs are imposed as a result of the change. Under the
CBCA, the Director is authorized to correct any certificate he issues.
A corrected certificate issued where the error was made by the
Director will be provided for free while the fee for any other type of
corrected certificate will be fixed at $200 instead of being "the
same fee as would be payable for the certificate it replaces."
The fees for most certificates are $200 with the exception of $250 for
a certificate of incorporation for which an application was not made
online (an online application for a certificate of incorporation is
$200). The $200 fee represents the estimated cost of providing a
corrected certificate. The fee will only provide a savings for those
who paid $250 for a certificate of incorporation and no new costs will
be imposed on federal corporations.

These regulations arguably do not impose any tangible costs since they
provide the necessary details to make the federal corporate framework
operational. Most of the benefit and cost considerations were
considered at the policy level when the amendments were made to the
CBCA. For instance, Parliament decided that the benefits of expanding
shareholder rights outweighed the costs that may be imposed on the
corporations. Therefore, the costs of not having the regulatory
framework would be the denial of the rights of a corporation or person
that is conferred on them by the amendments to the CBCA.

With respect to benefits, corporations will benefit from the
regulations that harmonize requirements with provincial securities
requirements, such as the definition of "distributing
corporation" and the insider securities provisions. Harmonization
would result in lower compliance for CBCA corporations since they have
only one set of standards to follow rather than two.

The regulations were prepublished in Part I of the Canada
Gazette on September 8, 2001 and the public was invited to submit
comments within the 30 days following publication. Prior to
prepublication, consultations were held twice on previous drafts of
the regulations. First, in the Spring of 2000 in conjunction with the
first tabling of the amendments as Bill S-19, the draft regulations
were submitted to the Senate committee and were also posted on
Industry Canada's website. After Bill S-19 died on the order paper
because of the Fall election, the bill was retabled as Bill S-11 in
February 2001. The accompanying draft regulations benefited from
comments from the first set of consultations and also included new
provisions such as regulations related to electronic documents and
corporate interrelationships. The public was again afforded the
opportunity to comment on the draft regulations.

A summary of the comments received during the first two consultations
and during the prepublication period is set out in Annex B.

Based on the submissions, several changes were made to the
prepublished regulations. None of the changes presented a change in
policy. Instead, the modifications were made to better meet stated
policy objections and are essentially corrective in nature. For
instance, the definition of "distributing corporation" was
too broad and went beyond harmonizing the definition with provincial
securities legislation. Similarly, one of the prescribed business
sectors to which a more restrictive directors' residency rule
applied was originally overly inclusive. In addition, the impact of
some of the proposed regulations had an unintended effect such as the
electronic document provision that in effect treated corporations
using electronic means to communicate with shareholders differently
from corporations using traditional means. The proposed regulation to
harmonize record dates related to shareholder meetings with provincial
securities requirement had the opposite effect of restricting the
corporation when the intention was to provide corporations with more
flexibility. A proxy circular disclosure item which was required in
the former regulations was unintentionally excluded from the
regulation.

Only one significant modification was made to the regulations. The
Coalition for CBCA Reform which represents ten of the largest publicly
traded companies in Canada submitted that the proposed regulation
setting out the conditions under which persons other than management
can communicate with shareholders without having to produce a
dissident proxy circular was too broad and should be deleted. The
intended purpose of the regulation was to enhance shareholder
communication and the regulation was based on Rule 14a-2 made under
the United State's Securities and Exchange Act of 1934.
Accordingly, the suggestion to delete the regulation was not accepted.
Instead the regulation was modified to more closely follow Rule 14a-2
so that persons in a conflict situation could not benefit from the
regulation. For example, a shareholder seeking election as a director
cannot communicate with other shareholders about being elected. Also a
person benefiting from the regulation could not seek directly or
indirectly the power to act as proxy. In such circumstances, the
person must send a proxy form and circular providing information to
the shareholder. While the Coalition for CBCA Reform would still
prefer that the regulation be deleted, it does accept the changes
made. In addition, a representative subcommittee of the Canadian Bar
Association agrees to the changes. The Canadian Bar Association
proposed the original regulation during the Senate hearings for Bill
S-19.

Since the changes restricted the scope of the prepublished regulation,
interested stakeholders – primarily shareholder organizations – were
contacted directly to bring their attention to the changes. The
proposed changes were also posted on Corporations Canada website with
an explanation on why the changes were being made.

In general, all who responded supported the changes to the regulation.
Fairvest, a provider of Canadian corporate governance research and
related services to institutional investors, found the changes to be
reasonable. The Pension Investment Association of Canada, a
representative organization for pension funds in Canada in matters
relating to investment and corporate governance, also fully supported
the changes. Two stakeholders – Shareholders Association for Research
and Education and Social Investment Organization – approved of the
changes but suggested two further modifications.

The first suggestion was to allow persons acting on behalf of
shareholders to benefit from the regulation. This change would be
consistent with Rule 14a-2. While the regulation could be interpreted
to implicitly allow such persons to communicate with other
shareholders, the suggested change was made for the sake of clarity.
The second suggestion was to allow persons who receive special
commission or remuneration from a third party to provide proxy voting
advice to any shareholder. Consistent with Rule 14a-2, the regulation
only allows persons to provide proxy voting advice to shareholders who
are clients as long as any special commission or remuneration are not
paid by third parties. This issue will need to be further examined as
a separate initiative to determine the advisability of expanding the
scope of the regulation.

The CBCA is a self-enforcing statute where interested parties can
resolve their disputes through the courts. The Director, as a policy,
will only intervene in limited circumstances where a significant
public interest is involved and the spending of public funds is
justified. With respect to the administration of the CBCA, e.g.
issuing certificates and filing of annual returns, the Director
already has in place procedures and mechanisms to ensure compliance
with the CBCA and the associated regulations. The regulations do not
require any new compliance procedures.

The definition of "document" has been removed since
provisions relating to forms to be sent to the Director have
been deleted. See description section of Regulatory Impact
Analysis Statement regarding the inclusion of the definitions of
"distributing corporation" and "going private
transaction".

Part 1 — General

Forms – The regulations require the Director to publish
any administrative forms, procedures or policy guidelines in a
publication generally available to the public.

"Resident Canadian" Class of Persons
Prescribed – No change to the existing regulations.

Exemption Circumstances Prescribed – The
circumstances under which the Director may exempt a
corporation from a requirement to send a notice or
information to the Director under the CBCA are that the
exemption must not prejudice any of the shareholders or the
public interest.

Retention of Records – The time period for the
retention of the Director's records has been moved from
the CBCA to the regulations, but the specified time period of
six years is not a change from the former CBCA requirement.

The regulations are essentially the same as the former
regulations. "Official marks" has been added so that a
corporate name cannot be confused with both a trade-mark or an
official mark. The regulations also clarify the reasons for
refusing a corporate name if it lacks distinctiveness. The other
substantive change is the addition of a criterion to determine
what is a combined English and French form of a corporate name
which is now permitted under the CBCA.

Part 3 — Corporate Interrelationships

See description section in Regulatory Impact Analysis Statement

Part 4 — Insider Trading

See description section in Regulatory Impact Analysis Statement.

Part 5 — Meeting of Shareholders

Record Dates – The prescribed period for directors to
fix the record date for entitlement: to receive payment of
dividend; to participate in a liquidation distribution; or for
any other purpose is not more than 60 days before the particular
action to be taken. The prescribed period for the directors to
fix a record date for entitlement to receive notice of a meeting
of shareholders and to vote at a meeting is not less than 21
days and not more than 60 days.

Notice of Meetings – The specific periods for fixing
the record date to establish the shareholders of record, as
well as for providing notice of a shareholders' meeting,
have been moved from the statute to the regulations. The
prescribed period is not less than 21 days and not more than
60 days before the meeting.

Other than the section on Proxy Circular Exemption (see
description section in the Regulatory Impact Analysis
Statement), the regulations are essentially the same as the
former regulations with the new requirement that the management
proxy circulars must also include a statement indicating the
final date by which a corporation must receive a proposal that a
shareholder proposes to raise at the next annual meeting. The
other changes are consequential. For example, paragraph 35(i) of
the former regulations regarding financial assistance to
shareholders or officers of a corporation has been deleted
because the relevant section of the statute has been repealed.

Part 8 — Financial Disclosure

This part is not changed from the former regulations.

Part 9 — Constrained Share Corporations

The constrained share regulations are the same as the former
regulations except for some wording changes to modernize the
language and make minor non-substantive clarifications. The
substantive change is that the reference to the Insurance
Companies Act and the Trust and Loan Companies Act
has been moved from the CBCA to the regulations.

Part 10 — Rules of Procedure for Applications for Exemption

This part is not changed from the former regulations.

Part 11 — Net Value of Total Financial Interest

See modified proportionate liability in the description section
in Regulatory Impact Analysis Statement

Part 12 — Cancellation of Certificates

See description section in Regulatory Impact Analysis Statement

Part 13 — Prescribed Fees

The regulations add a provision that no fee is payable for the
issuance by the Director of a corrected certificate when the
correction is required solely as a result of an error made by
the Director. Also, the regulations state that a corporation may
charge a fee for the issuance of a security certificate. This is
not a new fee; the amount ($3) has simply been moved from the
statute to the regulations.

Schedule 1 — Reporting Issuer

This schedule is referred to in the definition of
"distributing corporation" in the regulations. It
incorporates by reference the definitions of reporting issuer in
each provincial law.

Schedule 2 — Definition of Take-over bid

This schedule is referred to by the definition of the term
"take-over bid" in the regulations. It lists the
appropriate definitions of take-over bid in each provincial and
territorial law.

Schedule 3 — Executive Remuneration

This schedule is not changed other than to update
provincial/territorial information, where required.

Schedule 4 — Indebtedness of Directors and Officers

This schedule is not changed other than to update
provincial/territorial information, where required.

Schedule 5 — Fees

The schedule fixes the fee for a corrected certificate to $200
rather than stating that the fee is the "same fee as would
be payable for the certificate it replaces." This amount
better reflects the cost of providing the certificate. This
change has minimal impact since the fee for most certificates is
$200. The exception is the certificate of incorporation that is
not filed online for which the fee is $250; the fee is $200 if
filed online.

Regulations repealed

Sections in Part 1 of the former regulations regarding
forms, the format of the forms and the transmission of
notices and documents in electronic forms have be removed
since the Director now has the authority to establish
these requirements administratively. Schedule 1 of the
former regulations will also be deleted for the same
reason.

The take-over bid and insider reporting provisions are
also deleted since the related provisions in the CBCA have
been repealed.

Provisions concerning the reservation of corporate names
and the use of the NUANS® Name Search System database has been removed since no requirement
exists that these be established by regulation.

The regulation related to exemption from public disclosure
of financial statements has been removed since no
requirement exists that it be established by regulation.

Bill S-11 which amends the Canada Business Corporations Act
received Royal Assent on

June 14, 2001. The proposed Canada Business Corporations
Regulations, 2001 (CBCR) will bring the amendments into effect.
The regulations were published in Part 1 of the Canada
Gazette on September 8, 2001, with a notice inviting the
interested parties to submit comments by October 8, 2001.

Prior to prepublication in Part I of the Canada Gazette,
consultations on the draft regulations were held twice. First, in the
Spring of 2000 in conjunction with the first tabling of the amendments
as Bill S-19, the draft regulations were tabled in the Senate with the
bill and were also posted on Industry Canada's website. After Bill
S-19 died on the order paper because of the Fall election, the bill
was retabled as Bill S-11 in February 2001. The accompanying draft
regulations benefited from comments from the first set of
consultations and also included new provisions such as regulations
related to electronic documents and corporate interrelationships. The
public was again afforded the opportunity to comment on the draft
regulations.

We have considered the comments received to date, including comments
from the two previous consultations, and thank those individuals and
organizations who have provided their views.

The following is a summary of the comments received during the first
two consultations and during prepublication.

A. Definitions

1. "Distributing Corporation" (s. 2)

Proposed regulation:To harmonize with the provinces,
a "distributing corporation" means a corporation that is a
"reporting issuer" or "distributing corporation"
under any provincial securities or business legislation. Also included
in the definition are a corporation:

that has filed a prospectus or similar document under provincial
legislation or under the laws of a jurisdiction outside Canada;

any of the securities of which are listed on a stock exchange in or
outside Canada; or

that is involved in, formed for, resulting from or continued after
an amalgamation, a reorganization, an arrangement or a statutory
procedure, if one of the participating body corporates is a
distributing corporation (i.e., is caught by other subsections of
the definition).

Comments:

Harmonization with the provinces is supported and is sufficiently
realized by incorporating the provincial definition. However, the
definition appears to be over-inclusive. Of greatest concern is the
use of such expressions as "involved in", "formed
for" and "participating body corporate" in the last
subsection. A non-distributing corporation can be "involved
in" a variety of transactions, reorganizations or statutory
procedures in which a distributing corporation is a
"participating corporation" without itself becoming a
reporting issuer under provincial securities law. (Coalition
for CBCA Reform)

The definition of a "distributing corporation" should
reproduce the presumption in the now repealed paragraph 2(7)(b) of
the CBCA that deems a corporation to be a "distributing
corporation" even if they do not comply with securities
legislation. Without it, many so-called "private"
investment corporations that routinely solicit investors and
distribute securities widely to the public without filing the
required prospectus or otherwise do not comply with provincial
securities will be able to carry on their illegal trade with less
regulatory framework and greater impunity. If they are deemed to be
distributing corporations, the public would have the right to
access their corporate records and can obtain copies of financial
statements sent to the Director, appointed under the CBCA. (Mr.
James Smirnois)

Response: Incorporation by reference of the provincial
definition is problematic because certain jurisdictions do not have a
comparable concept. Since the CBCA applies across Canada, the
definition of "distributing corporation" must be inclusive.
Furthermore, it should also capture corporations that are
non-distributing in Canada but are distributing elsewhere, e.g. the
United States. With respect to the comment about the use of broad
expressions such as "involved in", etc, the provision is
modelled after the relevant section of the Saskatchewan Securities
Act.

In follow-up discussions, the Coalition for CBCA Reform suggested that
the regulations be modified to state that where a definition of
"reporting issuer" exists in a provincial or territorial
statute, that definition should prevail for federal corporations to
which that statute applies. Otherwise, the other provisions in the
proposed regulation would apply. The final regulation has been
modified accordingly. The regulation no longer refers to
"distributing corporation" since the term as defined in
provincial corporate statutes cannot apply to CBCA corporations.

With respect to the comment about corporations that do not comply with
securities legislation, the securities commissions are the appropriate
bodies to enforce securities legislation and to impose sanctions.
Including a deeming provision in the regulations offers very little
protection to the public since corporations that do not comply with
securities legislation are much less likely to comply with corporate
legislation.

2. "Going-Private Transaction" (s. 3)

Proposed regulation: "Going-private
transaction" (GPT) includes an amalgamation, arrangement,
consolidation or other transaction involving a distributing
corporation that results in the interest of a shareholder being
terminated without his or her consent and without receiving in
exchange shares of equivalent value of the successor corporation.

Comments:

The definition in the regulations is substantially broader than the
definitions found in the Ontario Securities Commission (OSC) rule
and the Quebec Securities Commission (QSC) policy and the
definition contains none of the exemptions in the Ontario Rule.
With the recent harmonizing of QSC policy Q-27 and the Ontario
Rule, consider a definition that is more closely aligned with those
standards. Recognizes that using broad language may be desirable
given the objective of clarifying that GPTs are permitted, but
concerned that dissent rights should not inadvertently attach to
transactions that are accidentally caught by a too broadly worded
definition. (Coalition for CBCA Reform)

Response: Harmonization with the definitions
contained in Ontario Securities Commission Rule 61-501 and QSC Policy
Q-27 would not achieve the purpose of the CBCA, which is to expressly
permit transactions commonly referred to in the marketplace as
going-private transactions. The provincial instruments referred to
only regulate a GPT involving a related party of the issuer and their
definitions are drafted accordingly. The definition of GPT set out in
the proposed regulations is designed to cover all such transactions,
whether or not a related party is involved. Bill S-11 is clear that a
corporation may not carry out a GPT unless it complies with any
applicable provincial securities laws. The federal scheme does not
impose any additional requirements on corporations in this area.

The comment concerning dissent rights is an issue relating to the
statute and not the regulation. Bill S-11 contains a provision
requiring a review of the CBCA within five years. We will consider the
dissent right issue at that time.

B. Electronic Documents and Meetings

1. Consent (s. 7(1) and s. 8)

Proposed regulations: Before any document required to
be sent by the CBCA or the regulations can be sent electronically, the
addressee must provide consent. The proposed regulations stipulate
that the consent must be in writing.

Comment:

The proposed regulations are inconsistent with the Canadian
Securities Administrators' National Policy 11-201 which allows
for a consent to be given electronically or non-electronically. The
policy also allows for the revocation of a consent to be provided
either in writing or non-electronically. The regulations should
permit electronic consent to receive materials electronically, as
well as allowing for the revocation of the consent to be provided
electronically. (Computershare Trust Company of Canada)

Response: Section 252.5 of the CBCA states that any
requirement under the Act or the regulation that require information
be created in writing is satisfied by the creation of an electronic
document as long as the information in the electronic document is
accessible so as to be usable for subsequent reference and any
regulation is complied with. Therefore, the regulations allow consent
to be provided or revoked electronically.

2. Receipt of electronic documents (s. 12)

Proposed regulation: A document sent electronically
is considered to be received when it enters the information system
designated by the addressee or, if the document is posted on a
website, when it is accessed by the addressee.

Comments:

Determining whether an electronic document has been accessed by an
intended recipient at a website may be impractical to monitor for
the sender. It would be more practical if the regulations were to
deem any web-posted document as received either (a) when notice of
the posting is communicated to the recipient or (b) at the time it
is posted if the sender has received from or on behalf of the
recipient a prior general acknowledgement that web posting is an
acceptable means of communication and the recipient has undertaken
to be responsible for monitoring the web-site. (Coalition for
CBCA Reform)

Response: We agree that it is not practical to
require corporations to monitor whether a shareholder has accessed
web-posted documents. Moreover, it would place a higher duty on
corporations engaging in electronic communications; corporations
sending documents by mail are not required to monitor whether the mail
has been opened by a recipient. The onus should remain, however, on
the corporation to inform recipients that a specific document can be
accessed electronically. The regulations have been modified so that an
electronic document posted on the website is considered to received
when the notice of the posting is received by the addressee, or if
sent electronically, when the notice enters the information system
designated by the addressee.

3. Electronic participation at shareholders meetings (s. 45,
s. 46)

Proposed regulations: When a vote is to be taken at a
meeting of shareholders, the voting may be carried out electronically
if the communications facility permits subsequent verification of the
votes and permits the tallied votes to be presented to the corporation
without it being possible for the corporation to identify how each
shareholder or group of shareholder voted.

Comments:

There is a need to include relevant standards regarding electronic
participation at shareholder meetings. (Coalition for CBCA Reform)

Mandating a secret ballot requirement for all electronic voting
would be highly controversial. If all that is intended is to have
the capacity to perform a secret ballot electronically as a
pre-requisite to an electronic voting system to be used at a
shareholder meeting, we have no difficultly with that objective.
(Coalition for CBCA Reform)

Response: Setting standards in an area that is
continuously evolving would not be appropriate at this time. It is
preferable not to regulate this area unless such a need arises.
According to the drafters from the Department of Justice, the wording
of the regulation does require a communications facility to be used
for electronic voting to have the capacity to permit verification and
secret balloting.

C. Directors Residency (s. 16)

Proposed regulation: Corporations engaging in a
prescribed business sector must have a majority of its directors be
Canadian residents. One of the proposed business sectors is book
publishing, distribution and retail.

Comment:

Unlike the other prescribed business sectors, it is not ncommon for
retail outlets to sell books and magazines as a small part of a
much larger business. To alleviate concern as to what directorship
rules apply in this regard, we propose that the word
"primarily" be inserted before the word book.
(Corporate Law Subcommittee, Ontario Bar Association)

Response: The regulation was not intended to capture
retailers that sell books as a minor part of its business. The
regulation has been modified so that it only captures corporations
that engage primarily in the sale of books.

D. Shareholders' Meeting – Record Dates (s. 43 and s.
44)

Proposed regulations: The prescribed period for
directors to fix a record date for shareholders entitled to receive a
notice of meeting and for shareholders entitled to vote at a meeting
is not less than 35 days and not more than 60 days before the date of
the meeting. The prescribed period for directors to provide a notice
of time and place of a meeting of shareholders is not less than 35
days and not more than 60 days before the meeting.

Comment:

Although the time limits conform to National Policy Statement No.
41 (NP 41), the regulations do not incorporate the possibility of
obtaining from the applicable securities commission an exemption or
waiver from these time limits. Under NP 41, the time period could
be abridged to not less than 25 days. Thus the regulation would not
be in harmony with NP 41 nor will it be consistent with National
Instrument 54-101 which will replace NP 41. (Corporate Law
Subcommittee, Ontario Bar Association, Mr. Robert Karp, Torys,
and Mr. Donald Gilchrist, Osler Hoskins)

The CBCA as amended permits two record dates, one for determining
who is entitled to receive notice of the shareholder meeting and
another for determining who is entitled to vote at a meeting. Both
must comply with the maximum and minimum day requirement but need
not be the same date. With respect to shares registered in the name
of an intermediary, it is unclear what duty the intermediary has to
those who become transferees of beneficial interests between the
meeting notice date and the voting notice date. (Corporate Law
Subcommittee, Ontario Bar Association)

Response: The policy objective was to harmonize the
record dates with provincial securities policies to provide CBCA
corporations with greater flexibility. Prescribing a minimum of 35
days, however, has the opposite effect. Accordingly, the minimum
number of days has been changed to 21 days which was the minimum in
the former regulations and is consistent with other provincial
corporate legislation. The prescribed period no longer conflicts with
the record dates set out in NP 41.

As for the issue regarding an intermediary's responsibility during
the period between the record date for the notice of meeting and the
voting notice date, this is an issue that would be best resolved by
the Canadian Securities dministrators (CSA) through NP 41 or National
Instrument 54-101. Industry Canada has already raised this issue with
CSA.

E. Shareholder Proposals

1. Eligibility threshold (s. 47)

Proposed regulation: To be eligible to submit a
proposal, a person must hold, or have the support of persons who hold,
1 percent of the total number of outstanding voting shares of the
corporation or the number of shares with a fair market value of
$2 000. These shares must be held for at least six months prior to
submitting the proposal.

Comments:

The limits are too low. A much more significant minimum threshold
should be set. (TD Bank Financial Group)Comments submitted during Senate hearings for Bill S-19.

The limits are too high. There is no evidence that the shareholder
proposal mechanism has been abused in the past in Canada. An
individual should only have to be an powner of one share.
(National Business Law Section, Canadian Bar Association)Comments submitted during Senate hearings for Bill S-19.

The specified minimum requirements should not represent an economic
barrier to small shareholders. The recommended minimum requirements
is either a shareholding of 1 percent or at least $1 000.
(Michael Jantzi Research Associates Inc.)Comments submitted during Senate hearings for Bill S-19.

The timing of the fair market value could be at the close of
business on the preceding business day. (Ontario Securities
Commission)

The earlier draft of the regulations provided with Bill S-11
clearly indicated that the eligibility threshold for submitting
shareholder proposals clearly indicated that the threshold to apply
should be "the lesser of" those prescribed. This
clarification was eliminated in the wording in the prepublished
version. It is not clear when a shareholder has satisfied the
eligibility requirements, despite the use of the word
"or" indicating that only one requirement needed to be
satisfied. (Shareholders Association for Research and
Education, Social Investment Organization)

The eligibility threshold regulation should not apply to any
pending litigation before the courts upon its coming into force.
(Mr. James Smirnois)

Industry Canada's Response: Bill S-11 amended the
shareholder provisions in the CBCA to expand shareholders' rights.
The prescribed eligibility thresholds address concerns regarding
shareholders who have not manifested a genuine stake in the affairs of
the corporation. The thresholds are based on the U.S. Securities and
Exchange Commission's rules. These restrictions are offset by
provisions in the CBCA that allow pooling of shareholder holdings to
meet the thresholds. No changes to the prescribed thresholds have been
made to the regulation.

The regulation incorporates the suggestion that the timing of
valuation be at the close of business on the preceding business day.

The wording of the regulation, in both English and French, is clear
that a shareholder has to satisfy one of the two thresholds, i.e. the
number of shares equal to 1 percent of total voting shares or whose
fair market value is $2 000. It is not necessary to indicate that the
lesser of the two thresholds apply.

With respect to the concern raised about the impact of the regulation
on pending litigation, it is up to the courts to determine the impact
of the regulation once it comes into force.

2. Resubmission thresholds (s. 52)

Proposed regulation: If substantially the same
proposal was submitted previously, the corporation can refuse to
include the proposal in the management proxy circular if the minimum
amount of support was not achieved within the previous five-year
period. The minimum amount is 3 percent of the total number of votes
if the proposal was introduced at one annual meeting, 6 percent if the
proposal was introduced at two annual meetings, and 10 percent if the
proposal was introduced at three or more annual meetings.

Comments:

The voting thresholds for resubmission are too low. More reasonable
thresholds would be 20 percent in year one, 33 percent in year two
and 40 percent in year three. (Coalition for CBCA Reform)

The thresholds are too low as they would allow a shareholder to
dominate the agendas of meetings year after year. The thresholds
should start at 40 percent for the first meeting. Also, the
proposed regulation would put an administrative burden on companies
to track the status of shareholder proposals year after year.
(TD Bank Financial Group)Comments submitted during Senate hearings for Bill S-19.

The minimum amount of support for a shareholder's proposal,
expressed as a percentage of the total number of shares voted,
should be calculated as a percentage of the shareholder vote
exclusive of that of a controlling shareholder. (Citizen's
Council on Corporate Issues)Comments submitted during Senate hearings for Bill S-19.

Thresholds for resubmission of substantially similar proposals
should be calculated as a percentage of the shareholder vote.
(Michael Jantzi Research Associates Inc.)Comments submitted during Senate hearings for Bill S-19.

The resubmission thresholds should be redrafted to more closely
reflect the wording in Rule 14a-8 of the General Rules and
Regulations promulgated under the U.S. Securities and Exchange
Act of 1934 to be more explicit and clear in its meaning and
intention. (Shareholders Association for Research and
Education)

Industry Canada's Response: The prescribed
threshold are unchanged. The minimum support thresholds are based on
the United States SEC rule made under the U.S. Securities and
Exchange Act of 1934 and the wording used respects the federal
government's drafting practices. Though different from the U.S.
rule, the wording captures the substance.

3. Prescribed response time periods (s. 48, s. 54)

Proposed regulations: Once a proposal is submitted, a
corporation may request within 14 days that a shareholder provide
proof that he or she meets the eligibility requirements. The
shareholder has 21 days after the corporation's request to provide
that proof. If the corporation refuses to include a proposal in the
management proxy circular, the corporation must notify the shareholder
in writing of its refusal within 21 days after the receipt by the
corporation of the proposal or of proof of ownership.

Comments:

Corporations are afforded significantly different periods of time
to refuse shareholder proposals (21 days after receipt of proposal
or up to 56 days if the corporation demands proof of ownership).
The shareholder whose ownership is challenged will have less time
to dispute a proposal prior to the annual meeting. Shorter time
periods are recommended: 10 days for the corporation to request
proof of ownership; 14 days for the shareholder to provide proof of
ownership; and 7 days for the corporation to notify shareholder of
refusal. (Shareholders Association for Research and
Education)

Industry Canada's Response: No changes have been
made to the regulations. The time periods were chosen to strike a
balance between the needs of the corporation and the person making a
proposal. The regulations do not prevent a shareholder from providing
proof of ownership at the time the proposal is submitted.

4. Disclosure in proxy circular (s. 58(z.8))

Proposed regulation: Management proxy circulars that
are sent to shareholders must include a statement indicating the final
date by which a corporation must receive a proposal that a shareholder
proposes to raise at the next annual meeting.

Comments:

Bill S-11 changed the latest deadline for submitting proposals from
90 days prior to the anniversary of the preceding annual meeting to
90 days prior to the anniversary of the notice of that
meeting. Since this change may create confusion and, the
regulations should require corporations to disclose the deadline
for submission in their management proxy circular. (National
Business Law Section, Canadian Bar Association)Comments submitted during Senate hearings for Bill S-19.

There is no requirement in the CBCA to provide in the proxy
circular a notice to shareholders as to the next deadline for
delivery of proposals as is required in the U.S. (Michael
Jantzi Research Associates Inc.)Comments submitted during Senate hearings for Bill S-19.

The requirement that a management proxy circular must include a
statement indicating the final date by which the corporation must
receive a proposal for the next annual meeting does not assist
shareholders if the last proxy circular is distributed before the
coming into force of this regulation. It is not clear what
shareholders are to be guided by if they wish to submit a proposal
at a meeting to be held after the coming into force of Bill S-11.
For instance, if the proxy circular sent prior to implementation of
the regulations contains no such indication, how will shareholders
determine the anniversary date of the previous notice of meeting?
There should be a waiting period of at least 1 year during which
the provisions of proposed regulation 47 which prescribes the
eligibility thresholds for submission of a proposal so that
corporations have the opportunity to comply with the requirement to
disclose of the final date in their proxy circular. (Mr. James
Smirnois)

Industry Canada's Response: The prepublished
regulation benefited from these earlier suggestions to require
disclosure in the proxy circular of the deadline for submission of
shareholder proposals for the following annual meeting.

When Bill S-11 and the regulations come into force, shareholders must
comply with the regulations establishing the eligibility thresholds
for submission of a proposal. The submission date is determined by the
regulation, not by the proxy circular. The date of the previous notice
of meeting is public information and can be ascertained without much
difficulty. Corporations would be required to disclose the deadline in
proxy circulars that are distributed after the coming into force of
Bill S-11 and the regulations. Therefore, a waiting period to bring
the relevant regulation into force is not necessary.

5. Word limit (s. 49)

Proposed regulation: The statement supporting the
proposal and the proposal must together not exceed 500 words.

Comments:

While the word limit for a shareholder proposal is appropriate, the
maximum length of the corporation's response to a shareholder
proposal should also be limited to a maximum of 500 words.
(Michael Jantzi Research Associates Inc.)Comments submitted during Senate hearings for Bill S-19.

Industry Canada's Response: This regulation is
based on the U.S. rule which contains no such restriction. The
regulation remains unchanged.

F. Proxy Circular

1. Disclosure of financial assistance

Prepublished regulation: The former regulations
required corporations to disclose any financial assistance which were
permitted under the CBCA. Prior to Bill S-11, corporations were not
allowed to provide financial assistance to shareholders, directors,
officers and employees except in limited circumstances. These
restrictions have been deleted in Bill S-11 and corporations are
currently allowed to provide financial assistance. The prepublished
regulation did not include any requirements to disclose any financial
assistance.

Comment:

The repeal of the financial assistance provisions in the CBCA does
not remove the need for the shareholders to know about
related-party or share-purchase financial assistance to insiders
and others. The primary rationale for the repeal of the financial
assistance provisions was that adequate protection already exists
through the fiduciary obligations imposed on directors. If
shareholders and other investors are to properly monitor and police
the discharge of these fiduciary obligations, it is imperative that
adequate and clear disclosure be made to them of material financial
assistance transactions in favour of insiders. The Ontario
Securities Act regulations specifically enumerates financial
assistance as a disclosure item. (Wayne Gray, McMillan
Binch)

Response: The deletion of the financial assistance
provisions in the CBCA does not remove the regulatory requirement to
disclose any material financial assistance in a proxy circular. The
omission of this requirement was not intended and was removed from the
proposed regulation because it referred to the deleted financial
assistance provisions. The requirement without reference to the
deleted sections of the statute has been retained in the regulation.

2. Disclosure of proxy voting results

Proposed regulation: No disclosure of the results of
proxy voting is required in the proxy circular.

Comment:

Greater disclosure by corporations of proxy voting results should
be required. Such disclosure should be made in proxy information
delivered to shareholders prior to the next annual or special
shareholder meeting. Specifically, the following information should
be disclosed: maximum number of votes eligible; total number of
votes cast on each issue; total number of votes rejected on each
issue; total number of votes in the affirmative; total number of
votes in the negative; and total number of votes withheld
(abstained). (Pension Investment Association of Canada)

Response: The proposed changes are material and would
require further examination and consultations to ensure that all views
are considered. We will examine the feasibility of this issue as a
separate initiative.

3. Dissident proxy circular (s. 69)

Proposed regulation: The draft regulations for Bill
S-19 excluded from the definition of "solicitation"
communication made to fewer than 16 shareholders.1 The
National Business Law Section of
the Canadian Bar Association submitted at the Senate hearings that the
limit was too restrictive and that other exemptions should be made
such as permitting (a) discussions among shareholders of management
proposals (similar to the exemption in the United States SEC Rule
14a-2(b)(1) under the U.S. Securities and Exchange Act of
1934); (b) all communications with a view to soliciting proxies
through a dissident proxy circular; and (c) furnishing proxy vote
advice by a person engaged in the business of proving such advice to a
client who is a shareholder. In response, the proposed regulation was
broadened so that the conditions under which persons other than
management can communicate with shareholders without having to produce
a dissident proxy circular are:

the communications relate to the affairs of the corporation and no
form of proxy has been sent;

the communications relate to the organization of a dissident's
proxy solicitation; or

the person is engaged in the business of providing proxy advice.

Comments:

The first condition is circular (not sending out a proxy means one
is exempt from having to send out a form of proxy) and should be
deleted. This provision would allow shareholders to influence votes
so long as a form of proxy has not been sent without meeting any
minimum disclosure or dissident proxy requirements. The result is
that the underlying purpose of protecting shareholders by making
sure they are informed about the identity, background, interests
and plans of those who are less formally soliciting their votes
will not be realized. (Coalition for CBCA Reform)

Response: Consistent with Bill S-11, the regulation
is meant to encourage communication among shareholders. Imposing
disclosure requirements would unduly restrict communication. We
appreciate the concern about shareholder protection and believe the
limitations set out in Rule 14a-2(b)(1) under the U.S. Securities
and Exchange Act of 1934 provide adequate safeguards. The
regulation has been modified so that it corresponds more closely with
the U.S. rule. Specifically, the regulation is clarified so that (1)
it does not apply to persons seeking directly or indirectly the power
to act as proxy and (2) the following persons are not permitted to
engage in communication activities when no form of proxy is sent:

a shareholder who is an officer or director of the corporation or
who serves in a similar capacity and whose communication is
financed directly or indirectly by the corporation

a shareholder who is or who proposes a nominee for election

a shareholder communicating in opposition to a transaction
recommended or approved by the board of directors of the
corporation and who is proposing or intends to propose an
alternative transaction to which the shareholder or an affiliate or
associate of the shareholder is a party

a shareholder who would receive a benefit from a decision relating
to a matter to be voted on at a shareholders meeting that would not
be shared pro rata by all other holders of the same class of
shares, other than a benefit arising from the shareholder's
employment with the corporation

any person acting on behalf of a shareholder described above.

To more closely model the regulation after Rule 14a-2b, certain
conditions must be met before a person who renders financial,
corporate governance or proxy voting advice can provide proxy voting
advice to shareholders. To protect shareholders, these conditions are:

the person must disclose to the shareholder any significant
relationship with the corporation and any of its affiliates or with
a shareholder who has submitted a proposal in accordance with
subsection 137(1) of the Act and any material interests the person
has in relation to a matter on which advice is given

the person receives no special commission or remuneration for
furnishing the proxy voting advice from any other person other than
a shareholder or shareholders receiving the advice; and

the proxy voting advice is not furnished on behalf of any person
soliciting proxies or on behalf of a nominee for election as a
director.

4. Form of proxy (s. 55(6))

Proposed regulations: The form of proxy must provide
a means for shareholders to indicate how their shares are to be voted
for each matter identified in the notice of meeting or in a management
proxy circular, dissident's proxy circular or proposal. A form of
proxy may confer authority with respect to matters for which a choice
is not provided if the form of proxy, management proxy circular or
dissident's proxy circular states, in bold-face type, how the
proxyholder will vote the shares. This is not a new regulation and
exists in the current Canada Business Corporations
Regulation.

Comments:

The provision allowing a form of proxy not to confer a choice
should be repealed to give shareholders the opportunity to vote
separately and expressly on each proposal submitted to a
shareholders' meeting. (Association de protection des
épargnants et investisseurs du Québec Inc.)Comments submitted during Senate hearings for Bill S-19.

The provision allowing a form of proxy not to confer a choice
should be repealed to accord with our recommendation that a
proxyholder must be required to vote the share in accordance with
the wishes of the shareholder and not at the proxyholder's
discretion. Furthermore, the regulations should prohibit the
drafting of a proxy form in such a way as to give any advantage
over other candidates to candidates put forward by management.
(Citizen's Council on Corporate Issues)Comments submitted during Senate hearings for Bill S-19.

Democracy would be far better served if the shareholder could vote
separately for each candidate. The regulations should specify proxy
form drafting parameters that would establish the principle of
separate vote for each candidate. (Association de protection
des épargnants et investisseurs du Québec Inc.)Comments submitted during Senate hearings for Bill S-19.

Industry Canada's Response: The proxy form
regulations were amended in 1998 to be harmonized with applicable
provincial securities legislation. Since our objective is to harmonize
as much as possible to reduce compliance costs for CBCA corporations,
no changes have been made at this time.

G. Financial Disclosure (s. 71)

Proposed regulations: Financial statements must be
prepared in accordance with generally-accepted accounting principles
(GAAP) as set out in the Handbook of the Canadian Institute of
Chartered Accountants. This is not a new regulation and the
requirement exists in the current Canada Business Corporations
Regulation.

Comments:

This regulation could become an impediment to the work being done
by Canadian and U.S. securities regulators and others to either
endorse international accounting standards or allow Canadian
companies to report based on US GAAP. Greater flexibility should be
included by amending the regulation so that distributing
corporations can prepare their reports based on any other
accounting standards that Canadian securities authorities endorse
as acceptable for reporting issuers.(Coalition for CBCA
Reform)

Industry Canada's Response: We will review this
suggestion after considering the results of the Canadian Securities
Administrators' consultations on financial reporting.

1. When the amendments to the CBCA were retabled as Bill S-11, a new provision was included to allow dissident proxy solicitation to 15 or fewer shareholders. See subsection 150(1.1) of the CBCA. Return to (1)